Reporting Ancillary Airline Passenger Revenues

Reporting Ancillary Airline Passenger Revenues

Federal Register Notice
Friday, July 15, 2011
Volume 76, Number 136

[Docket No. RITA 2011–0001]

RIN 2139–AA13

AGENCY:Office of the Secretary, DOT.

ACTION:Notice of Proposed Rulemaking.

SUMMARY: The U.S. Department of Transportation (DOT or the Department) is proposing to collect revenue information in a more detailed manner regarding airline imposed fees from those air carriers meeting the definition of a large certificated air carrier. Many air carriers have adopted a la carte pricing with separate fees for such things as checked baggage, carry-on baggage, meals, on-board entertainment, internet connections, pillows, blankets, advance or upgraded seating, telephone reservations, early boarding, canceled or changed reservations, transportation of unaccompanied minors, pet transportation, third-party services such as hotel rooms, car rentals, and pick-up and delivery services, et cetera. The Department wants to make airline pricing more transparent to consumers and airline analysts. This action is in response to a Departmental initiative and responds to recommendations of the Government Accountability Office. Also, the Department is proposing to change the way it computes mishandled baggage rates from mishandled baggage reports per unit of domestic enplanements to mishandled bags per unit of checked bags. Fees for checked baggage have changed consumer behavior regarding the number of bags they check, skewing mishandled baggage rates. Finally, the Department is proposing to fill a data gap by collecting separate statistics for mishandled wheelchairs and scooters used by passengers with disabilities.

DATES: All comments must be received by September 13, 2011. Late filed comments will be considered to the extent practicable.

ADDRESSES: You may submit comments to Docket RITA 2011–0001 by any of the following methods:

DOT will post all comments received, without change, to http:// www.regulations.gov, including any personal information provided. If DOT acknowledgement of comments is desired, please include a pre-addressed, stamped postcard on which the docket number appears. We will date the postcard and mail it to you.

Docket: To read background documents or comments received, go to http://www.regulations.gov at any time or to Docket Management Facility, U.S. Department of Transportation, 1200 New Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

Ancillary airline revenues have increased from 2005 through 2009 and continued their increase in 2010. At the same time, actual passenger ticket revenues have shown a slight decrease. The following numbers were taken from the Bureau of Transportation Statistics' Transtats Web site (http://www.transtats.bts.gov/Fields.asp?Table_ID=295 for Schedule P–1.2 Statement of Operations for large certificated airlines with over $20 million in annual operating revenues.

In July 2010, the Government Accountability Office (GAO) issued a report titled GAO–10–785, Commercial Aviation—Consumers Could Benefit from Better Information about Airline-Imposed Fees and Refundability of Government Imposed Taxes and Fees. This report found that it is difficult to determine the total amount of fees that airlines are collecting from passengers. ‘‘Currently revenues from fees other than baggage fees and reservation change and cancellation fees are reported in miscellaneous and other accounts that also include revenues from non-fee sources.’’ (See page 34 of the GAO report.) Thus, policymakers and regulators lack the necessary detailed data to determine total revenues from airline imposed fees and the fees’ impact on the industry. GAO recommended that DOT collect data on all the optional fees paid by passengers that relate to their trip in an identifiable format.

DOT is proposing a stand-alone reporting form to capture ancillary revenues. In order not to disrupt the various programs used by airline analysts to compute airline yields and passenger revenues, the Department’s proposal will not change the current reporting of the other Form 41 financial reports. DOT proposes to define ancillary revenues as those charges paid by airline passengers that are not included in the standard ticket fare. Generally, all mandatory charges necessary for air transportation are included in the ticket price, but fees for optional services are not. Treasury regulations and IRS guidance provide that revenue from many airline-imposed fees for airline services are generally not subject to the 7.5 percent excise tax, including fees for checked baggage, early boarding, phone reservations, and on-board meals. On the other hand, amounts paid for other airline imposed fees that are required as a condition of receiving domestic air transportation, such as some reservation change and cancellation fees, fuel surcharges and peak travel day charges, are subject to the 7.5 percent excise tax in accordance with IRS guidance and applicable regulations (see page 21 GAO–10–785, July 2010). The Airline Tariff Publishing Company (ATPCO), the world leader in the collection and distribution of airline fare and fare-related data, has over two hundred sub codes for the items that the Department is proposing to define as ancillary airline revenues. The Department is not proposing to require the detailed breakout of all the charges identified by ATPCO, but is using the ATPCO list of charges as a reference in developing the new reporting form— Report of Ancillary Passenger Revenues. The Department is proposing to collect the following data on optional charges in that report:

DOT proposes that carriers that submit the quarterly Form 41, Schedule P–1.2 Statement of Operations would also submit a new quarterly Form 41, P– 9 Schedule Statement of Ancillary Revenues. Carriers that submit the Semiannual Form 41, Schedule P–1.1 Statement of Operations would also submit a new semiannual Form 41, Schedule P–9.1 Statement of Ancillary Revenues. The new Reports of Ancillary Revenues will be designed to show the ancillary revenues received by the reporting carriers from their passengers. For instance, in a code-share arrangement, Carrier A markets the service and pays Carrier B a predetermined fee for operating a flight segment. Carrier A charges a $25 fee for each checked bag. The baggage fees collected from passengers by Carrier B are held for Carrier A. Carrier A would include these baggage fees in its Report of Ancillary Revenues.

The Department is requesting public comment on which items should be specifically identified as ancillary revenues, and the projected reporting burden for submitting a report of ancillary revenues in terms of costs and hours of reporting burden. Further, the Department requests public comment on how to best capture reporting of all ancillary fees. Should the Department include specific fee categories in the regulatory text? Or, specify in the regulatory text that ‘‘all ancillary fees’’ must be reported, with accompanying guidance on the reporting format and fee categories? How could the Department ensure that the fees categorized as ‘‘other’’ fees are most informative to the Department and to the consumer?

Mishandled Baggage Reports

The Department believes that the current matrix for comparing airline mishandled baggage performance is outdated. Airline passengers would have better information to compare airline services if the matrix for mishandled baggage were changed to the number of the actual mishandled bags per unit of checked bags rather than the number of Mishandled Baggage Reports (MBRs) filed by passengers per unit domestic scheduled-service passengers. Passenger behavior was altered regarding the unit of bags checked when many air carriers began charging passengers for each bag that they check. The GAO reported that the introduction of baggage fees resulted in a decline of 40 to 50% in the number of checked bags with a corresponding 40% decline in the number of MBRs per 1,000 passengers (see page 25 of GAO– 10–785, July 2010). Also, the ratio between checked bags and the number of passengers can vary greatly depending on the fees carriers charge. Moreover, there is not a direct relationship between the number of MBRs and the number of lost, stolen, delayed, damaged and pilfered bags because a single MBR could be submitted by a family with multiple mishandled bags. The proposed matrix would better inform passengers of their chances to retrieve their checked baggage and belongings in an acceptable and timely manner.

The Department is also interested in capturing data about the number of the mishandled wheelchairs/scooters per unit of wheelchairs/scooters transported in aircraft cargo. Many air travelers who use wheelchairs are reluctant to travel by air because of concern that the return of their wheelchairs or scooters will be delayed, or the wheelchair/scooter will be damaged or lost. However, we do not know the magnitude of the problem. The proposed data collection for mishandled wheelchairs/scooters is crucial to understanding the magnitude of the problem as this data is not available to us through other means. It is very important that passengers with mobility disabilities arrive at their destination with their wheelchair/ scooter in good working order. Without these devices, they will have great difficulty in exiting the airport or may be confined to their hotel or place of visit. We invite interested persons to comment on this proposal. Should the rule be expanded to require data not only about wheelchairs and scooters transported in the aircraft cargo compartment but about all wheelchairs and scooters regardless of whether the devices are transported in the cabin or in the cargo compartment? Should the rule also apply to other mobility devices such as walkers? The Department plans to publish the data it receives from the carriers which would increase public awareness of the issue, provide passengers with disabilities a means by which to compare the overall mishandled wheelchair/scooter rates by carrier and create an added incentive for air carriers to treat these mobility devises with greater care.

This action has been determined to be significant under Executive Order 12866 and the Department of Transportation’s Regulatory Policies and Procedures because of the substantial public and Congressional interest. It has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866 (Regulatory Planning and Review) and Executive Order 13563 (Improving Regulation and Regulatory Review) and is consistent with the requirements in both orders. Executive Order 13563 reaffirms the principles of Executive Order 12866 and seeks to create a regulatory process that ‘‘strikes the right balance’’ between what is needed to protect health, welfare, safety, and the environment and what is needed to foster economic growth, job creation, and competitiveness.

The Department is seeking public comment on the estimated costs and benefits of its proposal. To this end, the Department is seeking an open exchange of information between Department officials, transportation experts, industry representatives and members of the public. The Department believes this participation will lead to a better and more informed decision. We encourage those air carriers who would be covered by this proposal to provide comments to the Docket explaining the potential impact on their business operations. We are committed to selecting the least burdensome method to achieve the regulatory goals described above. By requesting public comments, we are hopeful that additional alternatives will be proposed which then can be reviewed by the Department’s decisionmakers. We believe this process will provide the Department the maximum regulatory flexibility.

The regulatory evaluation finds that the benefits of the proposal appear to exceed its costs considering non-quantifiable benefits, such as providing data on fees that impact the Airport and Airway Trust Fund, and providing consumers with better data for comparing air carrier service performance. Also, airline passengers will likely be better informed about the existence of ancillary fees. This NPRM provides the public an opportunity to express their views and needs.

Cost/Benefit Analysis

Benefits

The ancillary revenue data collection would supply the Federal Aviation Administration (FAA) and Government Accountability Office (GAO) with information to assess the potential impact of these fees on the Airport and Airway Trust Fund. In the last few years, some carriers have adopted a la carte pricing for optional services. Airlines have also developed new services with separate charges such as in-flight wireless internet access, one-time admission to airport lounges, accelerated frequent flyer miles, etc. Airlines have been able to lower airfares while increasing overall revenues with the a la carte pricing and new services. At the same time, revenues to the Airport and Airway Trust Fund have slightly decreased.

A report of ancillary revenues should assist DOT and the Justice Department in evaluating the impact of proposed mergers and acquisitions. Presently, it is difficult, if not impossible, to determine the average total cost of air travel to consumers. Ancillary charges often are omitted from the total costs of tickets reported in the Passenger Origin-Destination Survey.

There is a range of bills in Congress that would impose taxes on various airline services. Because of the current Department of Transportation reporting requirements, GAO has been unable to accurately forecast the amount of revenues that these taxes would generate.

The change in the matrix to mishandled bags per unit of checked bags would give consumers more reliable information on the air carriers’ performance regarding the treatment of baggage within their control. Under the current system, there is no direct relationship between the number of mishandled bags and the number of checked bags. Carriers report the number of MBRs that they receive from passengers. A mishandled baggage report may be filed for one bag or multiple bags. The denominator in the current matrix is enplaned passengers. A passenger may opt to travel with only carry-on baggage or may check multiple bags.

With the institution of baggage fees, the number of checked bags at some carriers has declined by 40 to 50 percent. There has been a corresponding 40 percent decline (i.e., improvement) in the industry mishandled baggage rates. A large part of the improvement in the mishandled baggage rate appears to be related to the decrease in checked baggage, although the current matrix hides this fact. The proposed matrix would have a direct correlation between mishandled baggage and checked baggage. Separate breakout of mishandled wheelchairs/scooters would assist passengers with mobility disabilities in selecting air carriers with high probabilities in meeting their special needs.

Finally, there is a gap in the Department’s data regarding the mishandling of wheelchairs and scooters. The proposed data will provide information to passenger with disabilities on which air carriers best meet their special needs.

The Department has not quantified the benefits of the ancillary revenue data collection, the change in the matrix to mishandled bags per unit of checked bags, or the data collection regarding mishandling of wheelchairs and requests comments on potential methods for quantifying benefits for any of these proposals, if possible.

Costs

The Department estimates that the one time programming cost to the industry would be just over $150,000 to report ancillary revenues to the Department. The approximately 77 air carriers would each incur about 40 hours of programming costs to capture the items that are considered ancillary revenues. The recurrent annual industry cost for submitting the new report is estimated at $100,000 or $700 per medium regional carrier and $1,400 for other Form 41 reporters.

The cost to the 18 air carriers that would have to collect data on checked and mishandled baggage is estimated to be approximately $180,000 or $10,000 per carrier. Most of the cost would be associated with developing a system for counting the number of gate-checked bags that are not scanned by the carrier when the passenger checks in for the flight. The Department also believes that the cost of the requirement to collect data on damage, delay or loss of wheelchairs or scooters transported in the aircraft cargo would be minimal for carriers, since we believe most carriers as a matter of good business practice already gather and maintain this information for their own purposes.

The Department seeks public comment on whether these cost estimates are accurate, and the extent to which air carriers gather and maintain this information for their own purposes.

B. Paperwork Reduction Act

Ancillary Revenues

This proposed action would increase the reporting burden on air carriers. DOT estimates a one-time programming effort of 40 hours per certificated air carrier to retrieve the required breakout of the reportable ancillary revenues from its accounting systems. After the programming effort is completed, there will be a recurrent reporting burden of approximately 10 hours per carrier to produce and submit each ancillary revenue report. Presently, there are 66 air carriers that would submit quarterly reports and 11 air carriers that would submit semiannual reports. Thus, the total first-year reporting burden would be 5,940 hours:

The proposed reporting form to collect ancillary data would become a part of Form 41 financial data which is collected under the OMB number 2138– 0013. The Department requests comments on the estimates of first year reporting burden.

Mishandled Baggage Reports

BTS anticipates a one-time reprogramming effort in changing the matrix from MBRs per 1,000 enplaned passengers to the number of mishandled bags per unit of checked bags. Most reporting carriers have these data in their systems or have the ability to gather the information. DOT estimates a range from 1 hour to 80 hours with an average of 20 hours per carrier to implement this proposed change. Total burden is estimated to be 360 hours for the 18 reporting air carriers.

The Department encourages air carriers to comment on these cost estimates.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice-and-comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.

I certify that, if adopted, this rule will not have a significant economic impact on a substantial number of small entities. The Department has defined small entities as those carriers that operate strictly small aircraft (60 seats or less aircraft). This rule will impact only those carriers that operate large aircraft or have annual domestic passenger revenues of over $600 million dollars. The cost estimate to implement this rule is between $2,500 and $12,500 per carrier.

D. Executive Order 12612

This rule has been analyzed in accordance with the principles and criteria in Executive Order 12612 (‘‘Federalism’’) and the Department has determined that this proposed rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

E. Trade Agreements Act

This act prohibits agencies from setting standards that create unnecessary obstacles to foreign commerce of the United States. The Department believes this proposed rule will not impact foreign commerce.

F. Unfunded Mandates Reform Act of 1995

This Act requires agencies to prepare written assessment of costs, benefits, and other effects of a proposed rule that include a Federal mandate likely to result in the expenditure by State, local, or tribal government. This proposed rule imposes no expenditures on State, local, or tribal government. The estimated cost to the airline industry from this proposed rule would account for 0.0002 percent of total industry operating revenues.

G. Regulation Identifier Number

A regulation identifier number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda each April and October. The RIN Number 2139–AA13 contained in the heading of this document can be used to cross reference this action with the Unified Agenda.

List of Subjects in 14 CFR Parts 234 and 241

Air Carriers, Reporting, On-time statistics, Mishandled baggage, and Uniform system of accounts.

Each reporting carrier shall report monthly to the Department on a domestic system basis, excluding charter flights, the total number of checked bags, including gate checked baggage, the number of wheelchairs and scooters transported in the aircraft cargo compartment, the total number of mishandled checked bags, including gate checked baggage, and the number of mishandled wheelchairs and scooters that were carried in the cargo compartment. The information shall be submitted to the Department within 15 days of the end of the month to which the information applies and must be submitted with the transmittal accompanying the data for on-time performance in the form and manner set forth in accounting and reporting directives issued by the Director, Office of Airline Information.

PART 241—[AMENDED]

3. The authority citation for part 241 continues to read as follows:

Authority: 49 U.S.C. 329 and chapters 41101, 41708, and 41709.

4. In part 241, the table titled ‘‘List of Schedules in BTS Form 41’’ in Section 22(a) is amended by adding entries for Schedule P–9, and P–9.1 to read as follows:

Section 22 General Reporting Instructions.

(a) ** *

LIST OF SCHEDULES IN BTS FORM 41

Schedule number

Title

Frequency

Applicability by carrier group

I

II

III

P–9 ............................

Statement of Ancillary Revenues ..........

Q ..............

-1............

x ...............

x

P–9.1 .........................

Statement of Ancillary Revenues ..........

SA ............

-2............

na ............

na

5. In part 241, the table titled ‘‘Due Dates of Schedules in BTS Form 41
Report’’ in Section 22(a) is amended by
revising the entries for ‘‘February 10’’,
‘‘May 10’’, ‘‘August 10’’ and ‘‘November
10’’ to read as follows:
Section 22 General Reporting
Instructions.

1 Due Dates falling on Saturday, Sunday or national holiday will become effective the first following work day.2 Reporting due dates on Form 41 schedules B and P are extended to March 30 if preliminary schedules are filed at the Department buy February

6. In part 241, Section 24 is amended by adding Schedules P–9 and P–9.1 to read as follows:

(20) Frequent Flyer Points/Points Acceleration(includes fees for purchasing travel with points or fees for purchases with points close to departure dates; Points Acceleration are fees for increased frequent flyer point accumulation);

(21) Commissions on Travel Packages—Hotel/Car Rental/etc.;

(22) Commissions on Travel Insurance;

(23) Duty-Free and Retail Sales;

(24) One-Time Access to Lounges; and

(25) Other.

Issued in Washington, DC, on July 7, 2011 under authority delegated by 14 CFR 385.19(a).